Loans That Linger: The Effects of Student Debt Decades Later

When you think about the financial situation of Millennials, student debt is probably one of the first issues that comes to mind.

But you might be surprised to learn that student loans can be just as—if not more— burdensome for the recently retired crowd.

A new analysis by the U.S. Treasury for CNNMoney finds that many retired Americans are seeing cuts to their Social Security paychecks because of student loans they once defaulted on. In fact, between 2006 and 2013, the number of retirees in this situation more than tripled, from 47,500 to 156,000.

These cuts can be pretty substantial, too: While the average Social Security monthly check is $1,200, the government generally takes out about $180 (about 15%) to cover student loan debts.

According to the Federal Reserve Bank of New York, just 2.2 million Americans over 60 hold student debt, compared to 15 million under 30. But the delinquency rate for 60-plus folks is significantly higher at 12.5% compared to 8.9%.

So where is all this troublesome debt coming from? In some cases, the retirees still owe money from decades ago, when they first went to school; or they may have gone back to school later in life to boost their marketability. In still other situations, they may have co-signed a loan for a child or grandchild.

The problem is that it can be extremely difficult to refinance these student loans. While interest rates have recently fallen to around 3%, many people have outstanding loans with rates of 7% or higher. Earlier in 2014, Senator Elizabeth Warren proposed a measure that would allow people to refinance more easily, but the bill was killed in June.

Unfortunately, there isn’t a quick fix for borrowers in this situation. One possibility is to request switching to an income-based repayment plan (generally, the amount you owe must be greater than your annual income, or a significant percentage). If you haven’t paid off the balance in 25 years, the loan is generally forgiven. Another option is to ask for an extended repayment plan, which will make it easier for you to afford other monthly expenses.

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